If you know me, you know that I am a big believer in financial literacy- which a quick online search will tell you is the “ability to understand and use personal finance skills to manage money effectively.” I strongly believe that understanding your own finances can help lead to better long-term success in reaching your financial goals.
Recently, I have been receiving quite a few questions from clients about their HSAs, or Health Savings Accounts. I think most of us view them as simply a way to pay medical bills with pre-tax dollars.
And while that is certainly one benefit, an HSA can also be a powerful long-term financial planning tool.
In fact, HSAs have a combination of tax advantages that are difficult to find anywhere else: eligible contributions can be made pre-tax or deducted from income, earnings can grow tax-deferred, and withdrawals for qualified medical expenses can be completely tax-free.
To help with the question of “what to do with my health savings account”, below are some frequently asked questions and best practices to consider.
Who is eligible to contribute to an HSA?
Generally, you must be covered by an HSA-eligible high-deductible health plan (HDHP), cannot have certain other disqualifying health coverage, cannot be enrolled in Medicare, and cannot be claimed as someone else's dependent.
There are also some important new rules. Beginning in 2026, bronze and catastrophic health plans are treated as HSA-compatible under expanded eligibility rules. Certain direct primary care arrangements can also be used without disqualifying an individual from contributing to an HSA.
How much can I contribute?
For 2026, the maximum HSA contribution is $4,400 for self-only coverage and $8,750 for family coverage. Individuals age 55 and older can generally contribute an additional $1,000 catch-up contribution.
A key point I often remind clients of is that their employer contributions count toward these limits. If your employer contributes $1,000 to your HSA, for example, that reduces the amount you can contribute yourself.
One best practice is to review your contribution amount toward the end of each year. If cash flow permits, consider increasing your contribution to take full advantage of the available tax benefits.
Should I contribute through payroll?
If this is available to you, it can be particularly attractive. HSA contributions made through a Section 125 cafeteria plan can generally avoid not only federal income tax but also Social Security and Medicare taxes.
That can give payroll contributions an additional tax advantage compared with contributing directly and claiming an income-tax deduction later.
Should I spend my HSA or invest it?
This is not a “one size fits all” answer. When I discuss this with my clients, every situation looks a little different.
If you need your HSA to cover current medical expenses, using it for that purpose is perfectly reasonable. However, if you can comfortably pay for current healthcare expenses from cash flow (your regular monthly paychecks) or cash savings, you may want to consider investing some of your HSA balance for the future.
This is different from a healthcare FSA or flexible spending account, which in 2026 only allows you to carry forward a maximum amount of $680, if your employer plan allows it. An HSA is not "use it or lose it." The balance carries forward from year to year, and earnings within the account aren't currently taxable.
This creates an opportunity to build a pool of tax-advantaged assets specifically for healthcare expenses later in life.
Can I reimburse myself years later?
Short answer? Yes, and I think this is one of the most interesting HSA planning opportunities.
There is generally no time limit for reimbursing yourself for a qualified medical expense, provided the expense occurred after the HSA was established, wasn't previously reimbursed, and wasn't claimed as an itemized deduction.
For example, suppose you pay a $2,000 medical bill out of pocket today and save the receipt. Rather than withdrawing $2,000 from your HSA, you leave the money invested. Years later, you could potentially reimburse yourself for that original $2,000 expense, tax-free.
I remind clients frequently- the key is recordkeeping. Save receipts and documentation, ideally electronically, so you can substantiate future reimbursements.
What expenses qualify?
Qualified expenses generally include medical, dental, prescription and other healthcare costs that meet the IRS definition of medical care. Expenses for a spouse and certain dependents can also qualify even when the HSA is in your name.
Health insurance premiums generally don't qualify, but there are important exceptions, including certain long-term-care premiums, COBRA coverage, coverage while receiving unemployment compensation, and certain Medicare premiums after age 65. Medigap premiums generally do not qualify.
A best practice is when in doubt, consult your tax professional or check IRS Publication 502 (https://www.irs.gov/forms-pubs/about-publication-502 ) before taking a distribution.
What happens to my HSA after age 65?
For my clients who have reached the age of Medicare eligibility, this is another reason HSAs can be useful in retirement planning.
You can continue taking tax-free distributions for qualified medical expenses, including reimbursing yourself for Medicare Part B premiums. You can also use HSA funds for non-medical purposes after age 65 without the additional 20% tax that normally applies to non-qualified withdrawals. However, those non-medical distributions are generally subject to ordinary income tax.
In that respect, after age 65 an HSA can function somewhat like a traditional IRA for non-medical withdrawals—with the added advantage that qualified medical withdrawals can remain tax-free.
What happens to my HSA when I die?
This is a big one- I get frequent questions from clients about what happens to their HAS when they pass. Beneficiary planning matters. If your spouse is your designated beneficiary, the HSA generally becomes your spouse's HSA and retains its tax-advantaged status.
If someone other than your spouse inherits the account, however, the account generally stops being an HSA and its fair market value becomes taxable to the beneficiary, subject to certain adjustments.
For that reason, reviewing your HSA beneficiary designation should be part of your broader estate-planning checklist.
The bottom line
HSAs have become very common in today’s health care environment. Your HSA can be much more than a checking account for this year's doctor visits. For the right person, it can serve as a valuable bridge between tax planning, healthcare planning and retirement planning.
The best strategy depends on your health plan, cash flow, tax situation and broader financial goals. But if you have access to an HSA, it is worth asking whether you're simply using the account—or truly maximizing it. If you, a family member or friend has questions about their HSA, please feel free to pass this on- we felt it was good information to share as we continue Moving Life Forward together.
Nathan Ollish
Featured Blog Image Source: iStock.com/Maks_Lab
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